Risky Business: Pandemic Underscores How Strong Personal Financial Health Can Build Small Business Resilience

Tuesday, September 8, 2020

By Laura Cummings
Director, Financial Health Network

It’s no secret that many small businesses don’t make it. Going into 2020, only about half of small businesses were expected to make it to their fifth year. Now, the COVID-19 pandemic has further laid bare that financial shocks can be devastating to small business owners, both personally and professionally. Between February and April of this year, an estimated 22% of small business owners closed their businesses, with higher rates among Black, Latinx, and Asian owners, and more closures are likely on the way. But as an important driver for economic success and eventual recovery, it’s critical that small businesses — especially those in underserved communities — get support from government and philanthropies to rebuild, and that owners also receive personal financial health support so they can build resilience over time and weather future financial shocks.

Small business owners start their businesses with their own capital — financial, human, and social. Without the foundation of personal financial health, it’s more difficult to secure credit, since business owners’ access to credit is highly reliant on their personal credit scores and their ability to personally guarantee the loan with assets. With the stark racial wealth gap and measurable differences in financial health between White, Latinx and Black households, it is no surprise that small business ownership rates are also lower among Latinx and Black adults compared with White adults. What is equally concerning is that federal money earmarked for small business support did not reach many of the Latinx and Black-owned small businesses that needed it most this year.

The economic impact of the pandemic continues to be most acutely felt by those least equipped to financially withstand it. This includes Black-owned small businesses, especially those without an open line of credit or a significant emergency fund. In fact, according to a recent study by the JPMorgan Chase Institute, Black-owned businesses started 2020 with less cash on hand relative to White-owned businesses of the same size. Even in the same financial position, Black-owned businesses with employees are less likely to have a banking relationship or bank funding. The Paycheck Protection Program (PPP), which offered funds for payroll and some operating expenses, relied heavily on business owners having established bank relationships. For Black-owned and underserved small businesses without those relationships, the PPP application became another hurdle and barrier for many of the small businesses that needed it most.

Building Resiliency for Small Businesses and Entrepreneurs

Financial health comes about when your daily systems help you build resilience and pursue opportunities, but small business owners are forced to sacrifice resilience to pursue opportunities.

As some communities look to economic recovery and how to bolster small businesses during these uncertain times, it is imperative to invest in the financial health of the entrepreneur. Ideally, this would be a continuum of support around personal financial health before business launch, but also ongoing support. Small business owners that have strong personal financial health are better positioned to weather financial shocks and serve as a source of stability for the owner, their household, and their community.

This long-term investment in small business owner financial health means addressing the financial health needs that are unique to entrepreneurs, including:

  • Risk Mitigation: Advising on incorporating, how to protect personal assets, and insurance coverage
  • Credit Building: Increasing access to credit through ongoing counseling and resources on managing credit
  • Decoupling: Access to resources, such as Small Business Administration loans, without a personal guarantee and reliance on the owner’s personal credit score
  • Connection: Fostering relationships with institutions and resources before a crisis (SCORE and other mentors, financial institutions)

This year, resiliency will be the hallmark of small businesses that survive the economic fallout of the pandemic. In order for small business owners not only to survive, but also thrive and contribute to driving economic growth and employment, we must help entrepreneurs lay the groundwork for personal financial health. That foundation is critical to establishing a path to personal wealth, allowing small businesses to serve as community-builders and neighborhood strongholds.

For more information, visit the research report When Business Gets Personal: Addressing the Financial Health Needs of Small Business Owners and our small business finhealth page, or contact me at

Join Us

Subscribe to a Better FinHealth Future, Today

Stay on the forefront of financial health news. Subscribe for access to content by leaders and innovators and invitations to digital and live events.